Cotton Prices Headed Up

Before May, after May key.

Published on: Mar 1, 2010

Like a hungry loom calling for fiber, the world needs more cotton. That demand will be key to what happens in the cotton markets in 2010, setting up a "before May and after May" scenario, says Joe Nicosia, CEO of Allenberg Cotton Co. in Memphis, Tenn.

"Until May, we'll need to attract cotton acres," Nicosia told a group at the Mid-South Farm and Gin Show last week. Cotton prices have already rallied from 42-cents to the 70s due to economic recovery and demand built as the world cotton industry chews through stocks. Prices above 80 cents begin to attract more cotton acres globally, claiming back some of the area that has left the crop over the last three years.

If current prices remain at least in the 70s, the world will require 5 million additional acres of cotton, Nicosia says. At least a third of that has to come from the U.S.

Futures prices will react to planting indicators prior to May. In its early-season survey, the National Cotton Council pegged numbers at 10.1 million. Allenberg says the number would be 10.5 million acres.

"If 10.1 million acres of cotton are planted, the price is going over a $1 because that's not enough acres in the U.S.," Nicosia says.

"Before May, it's about getting acres planted," Nicosia says. "After May, it's about yield. The fear of shortage will keep traders wary, so prices will be volatile," causing farmers and traders alike to look at 5- and 30-day forecasts, and the "markets going from euphoria to panic" within a short time.

"We don't have the cushion to take care of things that may happen during the growing season," Nicosia says. Pricing cotton after May is tricky.

"The size of your yield will determine prices," Nicosia says. "Size does matter!" Crop failures in other parts of the world could also have an effect on cotton prices, he notes.

Nicosia urges growers not to be "passive. If you're passive, 'not good things' will happen to you. Not making a decision (about marketing) is not a decision. Have the courage to sit down and make a decision and a marketing plan."